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Question: British Columbia Lumber has a raw lumber

British Columbia Lumber has a raw lumber division and a finished lumber division. The variable costs are:
■ Raw lumber division: $100 per 100 board feet of raw lumber.
■ Finished lumber division: $125 per 100 board feet of finished lumber.
Assume that no board feet are lost in processing raw lumber into finished lumber. Raw lumber can be sold at $200 per 100 board feet. Finished lumber can be sold at $275 per 100 board feet.

1. Should British Columbia Lumber process raw lumber into its finished form? Show your calculations.
2. Assume that internal transfers are made at 110% of variable cost. Will each division maximize its division operating-income contribution by adopting the action that is in the best interests of British Columbia Lumber as a whole? Explain.
3. Assume that internal transfers are made at market prices. Will each division maximize its division operating-income contribution by adopting the action that is in the best interests of British Columbia Lumber as a whole? Explain.

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